Sensex hits record, but experts advise caution

As the stock market celebrated Diwali three days in advance by closing at an all-time high, market experts sounded a word of caution to the retail investor: don’t try to time the market.

While stocks of automobile, metals, banking, pharmaceutical and IT companies are the best investments at the present moment, experts also warned against buying over-priced stocks.

Said Dhananjay Sinha, head (research) at Emkay Global Financial Services: "There are concerns on fundamentals so stick on positive quality stocks." He urged investors to resist the temptation to get into undervalued stocks.

On Wednesday the BSE benchmark Sensex closed at an all-time high of 21,033.97 points, a gain of 104.96 points or 0.50%, crossing the psychological level of 21,000 points, after RBI governor Raghuram Rajan raised the repo rate by 0.25 percentage point, and slashed the MSF rate by a similar rate.

Retail investors would also do well to look at stocks of well-run mid-cap companies, and to invest regularly in systematic investment plans (SIPs) rather than enter the market trying to capitalise on the volatility. By investing continuously, even when the market is down, the individual can benefit from stock movements rather than lose his investment, stock experts said.

In the present instance, there is no certain answer on whether the rally will sustain. Emkay’s Sinha said that more than Diwali, it would be the upcoming corporate results that will now hold cues to how the market behaves.

The general feeling is that there are few triggers for downsides, and the mood is more optimistic. "The expectation is that the rate-tightening cycle is at an end and that liquidity would improve from now," said Sinha.

As an individual, you should set yourself a target for each stock, and when you have achieved that, exit that and get into another.